What Will I Live On When I Retire if I Have No Savings and Don’t Own a Home?

Recently, someone reading a financial profile asked “I’m single. I’ve had low paying jobs all my life, and what money I did earn went to raise my children so I have no savings. I don’t own a home. What will I do when I retire?” Here’s some information for people in this situation to start planning.

OAS
If you have lived in Canada for 40 years since you turned 18, and you are a citizen or legal resident, you are entitled to the full OAS when you turn 67. (If not, you may still be partially eligible, see http://www.servicecanada.gc.ca/eng/isp/pub/oas/oas.shtml#one )

As of December 2012, the maximum OAS monthly payment is $544.98.
UPDATE: As of March 2014, the maximum OAS monthly payment is $551.54.

So that is $6539 per year. (UPDATE: March 2014: $6618.48)

GIS
GIS is for people who receive the Old Age Security pension and who have little or no other income.

So if you have no CPP, no private pension, no income from working (you’re allowed $3500 per year), no income from renting out your home, and no income from investments, you may qualify for the maximum GIS payment.

If you do have income it reduces the GIS payment. If you are single and your income is $16,500, you don’t qualify for any GIS. UPDATE: As of March 2014 the maximum income is $16 728.

As of December 2012, the maximum GIS monthly payment is $738.96.
Update: As of March 2014, the maximum GIS monthly payment is $747.86 for a single, divorced or widowed person.

So that is $8867 per year. (UPDATE: March 2014: $8974.32.)

The maximum combined OAS and GIS together is $15,406. (UPDATE: March 2014: $16 728.)

CPP
You can figure out how much CPP you may get by registering and then asking the government for an estimate.

Providing you worked at jobs that contributed to CPP (not cash-only hidden jobs) you may get more than you think.

The maximum pensionable earnings for CPP in 2012 were $50,100. (For 2014: $52 500.) So people who have those really high paying jobs are not actually getting a lot more CPP than everyone else. They may get private pensions or be able to save more, but CPP is the same for everyone from about 52,500 50,000 per year and up.

If you were not working for some years because you were at home taking care of children age 6 and under, you can get the government to take those years out of your CPP calculations. That will increase the amount you are eligible to get. You have to ask them to do this when you apply, so you must remember to do it.

If you receive CPP, any GIS payments will be reduced. So you can’t add the maximum OAS, GIS and CPP to get an estimate of your income. You can add OAS and CPP though.

Invest Your Savings in your TFSA
Say you have a very low income and don’t expect to get a pension when you retire. If you can save money, you should save it in a TFSA. The interest or income that money earns will not be taxed, ever. Under the rules right now, money saved in a TFSA also will not change how much GIS you can get.

Do not save your money in an RRSP. When you take money out of your RRSP when you are retired, it is taxable income. That means when you take money out of your RRSP, your GIS payment will be reduced.

If your TFSA is full, you may want to save money in an RRSP as well. At that point, you should test some examples of how best to save your money. It may be better to save in an RRSP as well, or it may be better to save only outside of your RRSP. But since you can save (as of January 2 2013) 25500 in your TFSA, if you have more savings, that’s a good thing to have to worry about! And each year, you get $5000 or more in new room in your TFSA.

What to Invest in Within Your TFSA
If you only have a few thousand dollars, you probably should keep it totally safe. It’s hard to sleep if you think your money is going to disappear in a stock market crash.

Try to get the best interest rate you can if you keep your TFSA money in a daily interest savings account. (Check rates offered by Tangernie ingdirect.ca, and People’s Trust among others.)

If you put your TFSA money into GICs, don’t buy without shopping around. Look for the best interest rates. Often there are incentives or deals to invest in December and January. Given that interest rates are incredibly low right now (in 2013) it is probably best to go with a short term of 1 or 2 years so you can re-invest if rates go up.

If you buy a GIC from a big bank like BMO, CIBC, Royal, ScotiaBank, or TD, you will get a better rate if you ask them for one. This is especially important when your GIC matures and is going to be re-invested for another term. They do not automatically give you the best rate. You have to phone and ask for it. Usually you can get .25 to .5% more by asking. So if the offered rate is 1% you can get 1.25% or 1.5% just be asking for it.

Get Proper Financial Advice
I’m not a financial planner or a financial specialist. Tax law can change and pensions can change. Always check with a reliable source like Revenue Canada before deciding exactly what to do with your money.

Join In
Do you have ideas for how to best prepare for retirement with little or no savings? Please share your experiences with a comment.

2 thoughts on “What Will I Live On When I Retire if I Have No Savings and Don’t Own a Home?”

I have spent hours on the Service Canada website, including accessing my account, but I can’t find the answer I’m looking for.

I am currently receiving an early Canada Pension of $478.55 a month. I am trying to move to Ecuador once I turn 65 next October; however, the entrance requirements are a minimum income of $800 a month. I am trying to find out if I will receive the OAS and GIC, what amounts I will receive and if I can collect them out of the country? My parents received these pensions but were only allowed to be out of the country for six months maximum.

According to the Service Canada website, you can receive OAS while living outside of Canada IF you lived in Canada for at least 20 years after turning 18 and you were a Canadian citizen or legal resident on the day you left Canada.
At least that’s what they say at http://www.servicecanada.gc.ca/eng/services/pensions/oas/pension/index.shtml
You probably already know that the maximum OAS you can receive depends on whether you lived in Canada legally (as a resident or citizen) for 40 years after you turned 18. You earn 1/40th of the maximum OAS monthly payment for each year you lived here after 18. Service Canada can confirm to you whether you are eligible for the maximum payment or not.